[Federal Register Volume 63, Number 246 (Wednesday, December 23, 1998)]
[Notices]
[Pages 71172-71174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33980]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23606; 812-11136]


CIGNA Funds Group et al.; Notice of Application

December 17, 1998.

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 12(d)(1)(J) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from section 17(a) of the Act, and under 
section 17(d) of the Act and rule 17d-1 under the Act to permit certain 
joint transactions.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered management investment companies to invest excess cash in 
affiliated money market funds and/or short-term bond funds.

APPLICANTS: CIGNA Funds Group, CIGNA Institutional Funds Group, CIGNA 
High Income Shares, CIGNA Variable Products Group and INA Investment 
Securities, Inc. (collectively, the ``funds''), and CIGNA Investments, 
Inc. (the ``Adviser'').

FILING DATES: The application was filed on May 8, 1998 and amended on 
October 26, 1998.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on January 11, 1999 and should be accompanied by proof of service 
on the applicants in the form of an affidavit, or for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549, Applicants, c/o Jeffrey S. Winer, 
Esq., CIGNA Investments, Inc., et al., 900 Cottage Grove Road, 
Hartford, CT 06252.

FOR FURTHER INFORMATION CONTACT:
Emerson S. Davis, Sr., Senior Counsel, at (202) 942-0714, or George J. 
Zornada, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549 (telephone (202) 942-8090).

Applicants' Representations

    1. The Funds, organized as Massachusetts business trusts with the 
exception of INA Securities, Inc. which is a Delaware corporation, are 
registered under the Act as management investment companies.\1\ The 
Adviser, a Delaware corporation and a wholly-owned subsidiary of CIGNA 
Corporation, is registered under the Investment Advisers Act of 1940 
and is the investment adviser for the Funds. Applicants also request 
relief for any other registered management investment company or series 
thereof that is currently, or in the future becomes, advised by the 
Adviser or an entity controlling, controlled by, or under common 
control with the Adviser (the ``Adviser Control Group'').\2\
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    \1\ CIGNA Funds Group, CIGNA Institutional Funds Group and CIGNA 
Variable Products Group are open-end management investment companies 
and CIGNA High Income Shares and INA Investment Securities, Inc. are 
closed-end management investment companies.
    \2\ All investment companies that currently intend to rely on 
the order have been named as applicants. Any other existing or 
future registered management investment company that relies on the 
order will comply with the terms and conditions of the application.

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[[Page 71173]]

    2. Each participating Fund has, or may be expected to have, 
uninvested cash (``Uninvested Cash'') held by its custodian. The 
Uninvested Cash results from a variety of sources, including dividend 
payments, interest received from portfolio securities, unsettled 
securities transactions, strategic reserves, matured investments, 
proceeds from liquidation of investment securities, and new investor 
capital. Currently, the Funds can invest Uninvested Cash directly in 
money market instruments or other short-term obligations.
    3. Applicants request relief to permit Funds that are not money 
market funds (``Participating Funds'') to use Uninvested Cash to 
purchase shares of one or more of the Funds that are money market funds 
and/or short-term bond funds (``Central Funds''), and the Central Funds 
to sell to and purchase shares from the Participating Funds (the 
``Proposed Transactions''). Central Funds that are money market funds 
will seek to maintain a stable net asset value and will be subject to 
rule 2a-7 under the Act. Central Funds that are short-term bond funds 
will seek current income consistent with the preservation of capital by 
investing in fixed-income securities while maintaining a dollar-
weighted average maturity of three years or less. Investment in a 
Central Fund that is a short-term bond fund would be available only to 
Participating Funds for which a direct investment in short-term bonds 
would be consistent with their investment objectives, policies and 
restrictions. Applicants believe that the Proposed Transactions will 
reduce transaction costs, promote liquidity, increase returns on 
Uninvested Cash, and enhance diversification of holdings.

Applicant's Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
acquired investment companies, represented more than 10% of the 
acquiring company's total assets. Section 12(d)(1)(B) of the Act 
provides that no registered open-end investment company may sell its 
securities to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person or transaction from any provision of section 
12(d)(1), if and to the extent that, the exemption is consistent with 
the public interest and the protection of investors. Applicants request 
relief under section 12(d)(1)(J) of the Act from the limitations of 
section 12(d)(1)(A) and (B) to permit the Funds to engage in the 
Proposed Transactions, provided, however, that a Participating Fund's 
aggregate investment of Uninvested Cash in Central Fund will not exceed 
25% of the Participating Fund's total assets at any time.
    3. Applications believe that the Proposed Transactions do not raise 
any of the perceived abuses that sections 12(d)(1)(A) and (B) were 
designed to address. Applicants state that each of the Central Funds 
will be managed specifically to maintain a highly liquid portfolio, and 
access to them will enhance each Participating Fund's ability to manage 
Uninvested Cash. Applicants also submit that the Proposed Transactions 
will not result in an inappropriate layering of fees because no sales 
load, redemption fee, asset-based distribution fee, or service fee will 
be charged in connection with the purchase and sale of shares of the 
Central Funds. In addition, applicants state that the Adviser will 
waive, or credit, its advisory fee for each Participating Fund in an 
amount that offsets the amount of advisory fees of the Central Fund 
incurred by the Participating Fund. Applicants also state that the 
Proposed Transactions will not result in a complex structure because no 
Central Fund will acquire securities of any other investment company in 
excess of the limitations of section 12(d)(1)(A).
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the company. Section 2(a)(3) of the 
Act defines an ``affiliated person'' of an investment company to 
include the investment adviser, any person that owns 5% or more of the 
outstanding voting securities of that company, and any person directly 
or indirectly controlling, controlled by, or under common control with 
the investment company. Applicants state that the Funds have a common 
investment adviser and a common board of trustees. Thus, each Fund may 
be an affiliated person, or an affiliated person of an affiliated 
person, of another Fund. In addition, applicants state that a 
Participating Fund may become an affiliated person of a Central Fund by 
owning more than 5% of the outstanding voting securities of the Central 
Fund. Accordingly, applicants state that the sale of Central Fund 
shares to the Participating Fund, and the redemption of such shares by 
the Central Funds, may be prohibited under section 17(a) of the Act.
    5. Section 17(b) of the Act provides that the Commission shall 
exempt a proposed transaction from section 17(a) of the Act if the 
terms of the proposed transaction, including the consideration to be 
paid or received, are fair and reasonable and do not involve 
overreaching on the part of any person concerned, the proposed 
transaction is consistent with the policies of each registered 
investment company involved, and with the general purposes of the Act.
    6. Section 6(c) of the Act provides, in part, that the Commission, 
by order upon application, may conditionally or unconditionally exempt 
any person, security or transaction, or any class or classes of 
persons, securities or transactions, from any provision of the Act if, 
and to the extent that, such exemption is necessary or appropriate in 
the public interest and is consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act.
    7. Applicants submit that the request for relief satisfies the 
standards of sections 17(b) and 6(c) of the Act. Applicants believe 
that the terms of the Proposed Transactions are fair and reasonable and 
would not involve overreaching because shares of the Central Funds will 
be sold and redeemed at their net asset values. In addition, the 
Participating Funds will retain their ability to invest their cash 
balances directly in money market instruments if they believe that they 
can obtain a higher rate of return or for any other reason. Applicants 
assert that any Central Fund may discontinue selling its shares to any 
of the Participating Funds if the board of trustees of the Central Fund 
determines that such sales would adversely affect the Central Fund's 
portfolio management and operations. Applicants also state that the 
investment by the Participating Funds in the Central Funds will be 
effected in accordance with the investment restrictions of the 
Participating Funds and will be consistent with each Participating 
Fund's policies as set forth in its registration statement.
    8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of an investment company, acting as principal, 
from participating in or effecting any transaction in connection with 
any joint

[[Page 71174]]

enterprise or joint arrangement in which the investment company 
participates. Applicants state that the Funds, by participating in the 
Proposed Transactions, and the Adviser, by effecting the Proposed 
Transactions, could be participants in a joint enterprise within the 
meaning of section 17(d)(1) of the Act and rule 17d-1 under the Act.
    9. Rule 17d-1 under the Act permits the Commission to approve a 
joint transaction covered by the terms of section 17(d) of the Act. In 
determining whether to approve a transaction, the Commission considers 
whether the proposed transaction is consistent with the provisions, 
policies, and purposes of the Act, and the extent to which the 
participation of the investment companies is on a basis different from 
or less advantageous than that of the other participants. Applicants 
state that the Funds will participate in the Proposed Transactions on a 
basis not different from or less advantageous than that of any other 
participant and that the transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The shares of the Central Funds sold to and redeemed by the 
Participating Funds will not be subject to a sales load, redemption 
fee, distribution fee under a plan adopted in accordance with rule 12b-
1 under the Act, or service fee (as defined in rule 2830(b)(9) of the 
NASD's Conduct Rules).
    2. The Adviser will waive or credit the amount of its advisory fee 
for each Participating Fund in an amount that offsets the amount of the 
advisory fees of the Central Fund incurred by the Participating Fund.
    3. Each of the Participating Funds will invest Univested Cash in, 
and hold shares of, the Central Funds only to the extent that the 
Participating Fund's aggregate investment in the Central Funds does not 
exceed 25% of the Participating Fund's total assets. For purposes of 
this limitation, each Participating Fund or series thereof will be 
treated as a separate investment company.
    4. Investment in shares of the Central Funds will be in accordance 
with each Participating Fund's respective investment restricitons and 
will be consistent with each Participating Fund's policies as set forth 
in its prospectuses and statements of additional information.
    5. Each Participating fund, Central Fund, and any future Fund that 
may rely on the requested order will be advised by the Adviser Control 
Group.
    6. No Central Fund shall acquire securities of any other investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-33980 Filed 12-22-98; 8:45 am]
BILLING CODE 8010-01-M